Consider risk and damage control in licence agreements, say in-house counsel

“If a licensee messes things up, a licensor’s brand could be damaged irreparably,” remarked Oliver Herzfeld, chief legal officer at brand extension agency Beanstalk in New York.

Speaking at Managing IP’s Global Trademark Forum yesterday in New York, Herzfeld and his fellow panellists were commenting on licensing brands to third parties, which gives these parties the right to create products with the brand owner’s trademark.

He argued that this process carries risks for licensors that licensees don’t have to worry about.

“I’m not saying that the licensee should just roll over and play dead,” said Herzfeld. “But if the licensee takes a very heavy-handed approach, it doesn’t make things move quickly.”

Speakers noted that brands also have to determine whether a licence will be exclusive or non-exclusive when drafting agreements.

Herzfeld said that the licensee typically wants an exclusive licence because it is investing money into products and would be wary of having competition in the marketplace.

But a licensor will want the freedom to license its brand to another party if the agreement with the original licensee does not go as well as it hoped.

Herzfeld added that there is a middle ground, however. Licensors and licensees can agree to a non-exclusive exclusive licence, where a licensor agrees not to license the mark to other parties so long as the licensee meets certain sales requirements or adheres to all the terms in the agreement.

Edward Clough, corporate counsel at Sequential Brands in New York, added that licensors should be mindful of which products they are allowing licensees to use.

He added that licensees often want rights to apparel, but that apparel is a broad category and that a licensee who wants rights to such goods might have no expertise in producing footwear, for example.

He said that licensors might want to maximise revenue by splitting up their licences into as many categories as they can.

Social pressures

The panellists also discussed challenges that brands face when working with celebrities and social media influencers.

Clough at Sequential said that when brands are working with celebrities, they should aim to craft an exclusive relationship to avoid said celebrities endorsing direct competitors.

Herzfeld at Beanstalk referenced a story where comedian Kathy Griffin secured an agreement to do an advertising campaign with Squatty Potty, a toilet stool company. Griffin later posted a tweet with a replica of the severed and bloodied head of Donald Trump. Squatty Potty then suspended its campaign featuring Griffin.

“For every agreement you draft, you should consider how you get out of it and what damage control you might have to do,” Herzfeld said.

Miri Miller, associate general counsel at digital marketing communications firm Dentsu Aegis Network in New York, said that she tries to educate her team about IP and to make sure that employees are aware of the Federal Trade Commission’s social media guidelines.

To make the point stick, her company has developed an ‘is-this-legal?’ quiz. She shows her team members different tweets and Facebook posts and asks them to identify potential pitfalls, including issues around the right of publicity.

“If a celebrity tweets about the brand, you can’t go and do paid advertising around it and say that this person really loves your products. That would violate their right of publicity,” she said.

Miller also spoke about the importance of making sure that licensees are adhering to regulatory requirements.

She told the audience about her own experience working with the launch of hunting video games, which were packaged with video game accessories that resembled guns. Miller said she learned a lot about toy gun regulations while working on this project and what colours were okay to use with the products.

One day someone she was working with showed her a magazine, which said that the US army was bringing out a line of video game accessories.

The magazine showed the gaming accessories using the army’s camouflage colour in a way that did not meet the regulatory requirements. Miller later found out that the licensee had not actually been approved to use those colours.

“It jumped the gun in marketing the product,” she said.

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